ISSUE OF CONVERTIBLE LOANS

RNS Number : 4737D

Plexus Holdings Plc

20 October 2022

 

Plexus Holdings PLC / Index: AIM / Epic: POS / Sector: Oil equipment & services

20 October 2022 

This announcement contains inside information

 

Plexus Holdings PLC

('Plexus', 'the Company' or 'the Group')

ISSUE OF CONVERTIBLE LOANS

Plexus Holdings plc is pleased to announce that it has raised £1,550,000 through the issue of 1,550,000 convertible loan notes ("Loan Notes") to each of OFM Investment Limited (an entity connected to the van Bilderbeek family), Ben van Bilderbeek, CEO of Plexus, and Jeff Thrall, Non-executive Director of Plexus, (together, the "Noteholders") under the terms of a loan note instrument (the "Instrument"). 

The proceeds from the issue of the Loan Notes will be used for working capital purposes and, along with the Company's existing cash resources, fund the Company's activities as it seeks to capitalise on the increasing pipeline of opportunities within Plexus' markets, and in particular its re-entry into the exploration wellhead rental from Jack-up rigs market where Plexus is in a licencing partnership with Schlumberger.

Background to the Issue of the Loan Notes

The Board has considered a number of options to secure additional working capital and strengthen the Company's balance sheet, and has determined, in conjunction with its advisors that the issue of the Loan Notes is the preferred approach and that it is the most time and cost-efficient method to enable Plexus to fund its strategic objectives and rental fleet build out in the short-medium term.

The Board recognises the importance of the Company's existing shareholders, and the issue of the Loan Notes will enable them to avoid dilution to their holdings at this time. Furthermore, the Loan Note structure provides for the participation of existing shareholders in a future capital raise, which is anticipated to take place alongside the conversion of the Loan Notes.

Details of the Loan Notes

The issue of the Loan Notes has raised an aggregate of £1,550,000 loans from OFM Investment Limited (an entity connected to the van Bilderbeek family), Ben van Bilderbeek and Jeff Thrall in the following proportions:

a.  OFM Investment Limited £1,000,000;

b.  Ben van Bilderbeek £500,000; and

c.  Jeff Thrall £50,000.

The Loan Notes are non-interest bearing, and their 'long stop' maturity date is the second-year anniversary of the date of the Instrument ("Maturity Date"). 

Although the Loan Notes are currently unsecured, the Instrument contains obligations on the Company to use all reasonable endeavours (so far as it lies within its powers so to do) to satisfy certain conditions (including passing of requisite shareholder resolutions to approve the grant of security) to enable the Loan Notes to be secured by way of a first ranking charge over all of the Company's assets (excluding any that are subject of a Bank of Scotland security) to be granted in favour of Ben van Bilderbeek as security trustee on behalf of the lenders.

The Instrument contains rights for the holders of Loan Notes to convert the Loan Notes in certain circumstances, subject to certain conditions being satisfied, specifically: (i) an offer of new shares to all or substantially all of the then existing shareholders of the Company (but excluding the Noteholders and their connected persons, save to the extent that such offer is not fully subscribed by such shareholders, in which case the offer may be extended to the Noteholders and their connected persons) on a materially pre-emptive basis before the Maturity Date (the "Qualifying Financing"); (ii) the passing of all shareholder resolutions required in respect of the Qualifying Financing and the conversion of the Loan Notes; and (iii) the Company, acting in good faith, deeming that any proposed exercise of such rights would not result in an obligation pursuant to Rule 9 of the Takeover Code on any person to extend an offer for all the shares in the Company.

The Instrument also contains an obligation for the Company to use reasonable endeavours (if, acting in good faith, it deems it commercially appropriate to do so at the relevant time) to procure satisfaction of the conditions to conversion following the receipt of a trigger notice (which can be served by the Noteholders if: (i) in the first year of the Instrument being constituted, the Company's share price averages 4p or more in any rolling 45 day period; or (ii) in the second year, the Company's share price averages 8p or more in any rolling 45 day period), or, if earlier, by mutual agreement of the Noteholders and the Company, or the Maturity Date.

In respect of the shareholder resolutions required in respect of: (i) the security described above; and (ii) the Qualifying Financing and the conversion of the Loan Notes, the Company has received irrevocable undertakings from the OFM Investment Limited, Ben van Bilderbeek, Jeff Thrall, Thrall Enterprises, Inc. and Mutual Holdings Limited to vote in favour of such resolutions. Together, such shareholders are interested in shares totalling 59.4% of the issued share capital of the Company (note, however, that the irrevocable undertakings relate to any shares held by such shareholders at the time such shareholder resolutions are tabled at the relevant general meetings of the Company).

The Loan Notes will be repayable on a winding up/ insolvency of the Company, or at any time (in whole or in part) at the election of the Company with the consent of the Noteholders. If the Loan Notes are repaid in cash, the Noteholders will, in addition to the principal amount of their Loan Notes, be paid an amount equal to 20% of the principal amount of their Loan Notes.

It has been agreed that the Noteholders, subject to shareholder authority, will convert their loans into new shares at a 20% discount to the share price paid by investors in the corresponding Qualifying Financing in recognition of and compensation for the funding support that has been provided. 

The Board had considered this scenario and has agreed that when the loan note instrument conversion event occurs within the two-year term of the Loan Notes, all shareholders, with the exception of the Noteholders, will be given the opportunity to participate in a future capital raise via an offer of new shares alongside the conversion. The Noteholders may participate to the extent that the open offer, or equivalent, is not fully subscribed. This mechanism gives existing shareholders the opportunity to participate in a capital raise and to broadly maintain their shareholding percentage in Plexus, or indeed potentially increase their holding if there was headroom to do so.

Related Party Transaction

The Noteholders consist of Jeff Thrall and Ben van Bilderbeek, both of whom are directors and shareholders of the Company, and OFM Investment Limited (a party connected to the Ben van Bilderbeek family), and the issue of the Loan Notes (the "Transaction") to the Noteholders is deemed to be a related party transaction pursuant to AIM Rule 13 of the AIM Rules for Companies. The Company's directors (excluding Jeff Thrall and Ben van Bilderbeek, who are both interested in the Transaction) consider, having consulted with the Company's Nominated Adviser, that the terms of the Transaction are fair and reasonable insofar as the shareholders of the Company are concerned.

The Takeover Code

The Takeover Code (the "Code") applies to the Company. Under Rule 9 of the Code, any person who acquires an interest in shares which, taken together with shares in which that person or any person acting in concert with that person is interested, carry 30% or more of the voting rights of a company which is subject to the Code is normally required to make an offer to all the remaining shareholders to acquire their shares.

Similarly, when any person, together with persons acting in concert with that person, is interested in shares which in the aggregate carry not less than 30% of the voting rights of such a company but does not hold shares carrying more than 50% of the voting rights of the company, an offer will normally be required if any further interests in shares carrying voting rights are acquired by such person or any person acting in concert with that person.

An offer under Rule 9 must be made in cash at the highest price paid by the person required to make the offer, or any person acting in concert with such person, for any interest in shares of the company during the 12 months prior to the announcement of the offer.

The Company has agreed with the Takeover Panel (the "Panel") that Ben van Bilderbeek (Chief Executive of Plexus) and Jeff Thrall (Non-executive Chairman of Plexus), and their immediate families and related trusts (the "Concert Party"), are acting in concert in relation to the Company. The Concert Party is interested in 59,684,919 Ordinary Shares, representing 59.4 per cent. of the voting rights of the Company. A table showing the respective individual interests in shares of the members of the Concert Party is set out below.

Concert Party Holdings	Ordinary Shares held	Percentage of issued share capital
Mutual Holdings Limited	42,700,001	42.5%
OFM Investment Limited	15,069,767	15.0%
Nazdar Limited	1,591,512	1.6%
Ben van Bilderbeek ¹	307,639	0.3%
Jeff Thrall ²	16,000	0.02%
	59,684,919	59.4%

¹ Ben van Bilderbeek is settlor of a trust which controls 59.96% of the shares of Mutual Holdings Limited and the entire issued share capital of OFM Investment Limited. Ben van Bilderbeek and his immediate family and related trusts have voting control over approximately 57.8% of the issued share capital of the Company and are free to increase their aggregate interests in shares without incurring any obligation to make an offer under Rule 9.

² Jeff Thrall has an indirect beneficial interest in a company which controls 32.5% of Mutual Holdings Limited. Additionally, Jeff Thrall has both a direct and an indirect beneficial interest in Nazdar Limited. Jeff Thrall and his immediate family and related trusts have voting control over approximately 1.6% of the issued share capital of the Company and are not able to increase their percentage interests in shares through or between a Rule 9 threshold without Panel consent.

The members of the Concert Party currently hold shares carrying more than 50% of the voting rights of the Company and (for so long as they continue to be acting in concert) may accordingly increase their aggregate interests in shares without incurring any obligation to make an offer under Rule 9, although individual members of the concert party will not be able to increase their percentage interests in shares through or between a Rule 9 threshold without Panel consent.

Under sections 979 to 982 of the Companies Act (the "Act"), if an offeror were to acquire 90 per cent. of the Ordinary Shares within four months of making a takeover offer as defined in section 974 of the Act, it could then compulsorily acquire the remaining 10 per cent. It would do so by sending a notice to outstanding shareholders telling them that it will compulsorily acquire their shares and then, six weeks later, it would execute a transfer of the outstanding shares in its favour and pay the consideration to the Company, which would hold the consideration on trust for outstanding shareholders. The consideration offered to the shareholders whose shares are compulsorily acquired under the Act must, in general, be the same as the consideration that was available under the takeover offer unless the shareholders can show that the offer value is unfair.

Pursuant to sections 983 to 985 of the Act, minority shareholders in the Company have a right to be bought out in certain circumstances by an offeror who has made a takeover offer. If a takeover offer related to all the Ordinary Shares and at any time before the end of the period within which the offer could be accepted the offeror held or had agreed to acquire not less than 90 per cent. of the Ordinary Shares, any holder of shares to which the offer relates who has not accepted the offer can require the offeror to acquire his shares. The offeror would be required to give any shareholder notice of his right to be bought out within one month of that right arising. The offeror may impose a time limit on the rights of minority shareholders to be bought out, but that period cannot end less than three months after the end of the acceptance period. If a shareholder exercises its rights, the offeror is bound to acquire those shares on the terms of the offer or on such other terms as may be agreed.

Update

Although the Company continues to actively promote its proprietary wellhead and related technologies, it has taken longer than anticipated to recover from what has been for some time challenging market conditions. However, the Board of Plexus is confident that the medium-term outlook for the Company remains strong and is encouraged by the recent increase in activity that is taking place, which has resulted in a growing number of customer enquiries and tenders. Strengthening the Company's working capital position at this time will help enable the Company to respond to and secure new orders as it seeks to make inroads into new markets. These include the "Exact-EX" and Centric-15" Jack-up rental exploration wellhead market, where Plexus is in a licencing partnership with Schlumberger, and for example the surface production wellhead and Plug & Abandonment markets.

In further consideration of steps being taken to strengthen the financing of Plexus, one of Plexus' licencing partners has indicated its agreement in principle to provide equipment manufacturing credit funding on a 'lease to own' basis, to help accelerate the build out of the Company's wellhead rental inventory, which if actioned would be paid down over a three-year period.

The Company continues to monitor its cost base and will manage this in line with the requirements of the business and the anticipated uplift in activity. With this in mind, the Board is also considering how best to manage its asset base in relation to non-core assets, and currently anticipates selling the long leasehold interest in a property in Aberdeen, which has become surplus to requirements. This property has already been sub-let to a third-party tenant and, if such a transaction could be concluded, it would accelerate the receipt of income from the property to further improve Plexus' working capital position and support the Company's planned capex programme.

Finally, it must not be forgotten what lies behind Plexus' value and prospects, and what its technology can contribute to the oil and gas industry. The Board believes that the vast majority of older hydrocarbon producing wellheads around the world are not operating to a recognised standard. This is because conventional annular seals have limited field-life, and for much of their service life must seek remedial solutions to address leaking, such as the use of unregulated periodic injection of sealing liquids, by service providers, who themselves have described such external intervention as a temporary fix. As Plexus' approach is to promote "prevention" and the long-term integrity of its equipment and the capabilities of its metal-to-metal "HG" seals, the Board considers that the case for the continuing use of conventional wellhead seal "cures", which it believes to be unreliable is becoming increasingly hollow. With the focus now firmly on eliminating methane emissions wherever possible, Plexus' leak-free metal sealing wellhead capability, based on the POS-GRIP method of engineering, which uniquely meets ESG and NetZero objectives, and which has resulted in the Company achieving the LSE "Green Economy Mark", should logically secure the place in the industry it deserves.

The Board appreciates the ongoing support of its shareholders, the market, and the industry, and looks forward to providing further updates as the above initiatives progress.

Ben van Bilderbeek CEO today said, " As your CEO, and the principal shareholder of Plexus Holdings Plc, I could not be prouder of our company, although I m ore than anyone am frustrated about the challenges faced by Plexus in recent years.

"Primarily because of circumstances beyond our control, Plexus had to navigate difficult trading conditions since 2015. Indeed, the huge drop in the price of oil placed us in the crosshairs of the major service providers who had to fight over every scrap of work, which meant that our potentially disruptive presence became less tolerated as drilling activity declined, whereas now this trend is reversing.

"Our choice was to soldier on, or to lock-down and preserve our IP assets until better days. However, the value of uniquely enabling intellectual property requires a qualified team to keep it active, which is why your Board decided to absorb negative cash flow, whilst we repositioned ourselves to be ready with a more diversified product mix once the market returns. In the event, we survived very challenging times by selling IP applications, non-core assets and by licencing non-exclusive rights to certain applications of our POS-GRIP technology.

"As the purveyors of disruptive technologies, Plexus elected to compete with the established gatekeepers of our industry. To their credit, some of these companies such as TechnipFMC ('TFMC') and Schlumberger/Cameron ('Cameron') recognised the value of our technology by entering into license agreements for certain aspects of our array of POS-GRIP applications.

"Specifically, the Plexus POS-GRIP Jack-up exploration wellhead system, now owned by TFMC, is still, we believe, the top choice in the Jack-up exploration wellhead rental market, and a few years later Cameron is developing its own version of POS-GRIP surface production wellheads, also under license.

"As a coincidence, I believe the two most competent ESG compliant exploration wellhead systems from Jack-up rigs in use today, have both been designed and developed by Plexus. The POS-GRIP system is now owned by TFMC, and our previous EXACT-15 exploration drilling system was bought by Cameron in 1995.

"In a welcome development, Plexus was able to licence back the rights to its original Exact-15 system from Cameron and has initiated a joint rental wellhead inventory investment programme, based on upgraded threaded hanger technology, which will soon be online.

"Our return to the exploration wellhead rental market is assisted by access to international markets through our partner Cameron, and Plexus is still well known throughout the industry as the original inventors of through the BOP Jack-up drilling technology, with previous customers looking forward to once again doing business with Plexus.

"In the meantime, the Ukrainian conflict has refocussed the North Sea and the rest of the world on the need to increase exploration and production activities, which is reflected by growing enquiry levels for our rental exploration and sold production wellheads.

"As announced today, I am pleased to be supporting Plexus through my investment in the Loan Notes, to meet the short-term investment needs of the Company. We recognise the support and importance of our shareholders, and it is intended that they will be given the opportunity to invest at the time of loan conversion, and I strongly recommend that they seriously consider 'standing their corner', when the opportunity presents.

"After the Gulf of Mexico incident of 2010, the opportunity for Plexus to develop a new subsea wellhead application using POS-GRIP technology lifted the Company's market cap to record highs. We backed our belief in the technology by developing, through a widely supported JIP, our Python subsea wellhead system. Only a concept then, the Python subsea wellhead is now a qualified, circa £4 million invested prototype ready for trial, which the Board of Plexus believes offers a wide range of operational, time saving and safety advantages, and represents an early example of a progressive collaboration approach to a significant challenge faced by the industry.

"With Python ready to undergo field trials, Plexus' extensive IP suite, know-how and goodwill is today far greater in scope compared to the time when Plexus was valued at circa £300 million. Although a return to such Halcyon days is not anticipated in the near future, the opportunity to re-enter the rental exploration wellhead market, where we were the original "go to" supplier for the North Sea, together with renewed interest in our Python subsea wellhead and surface production technology, gives me growing confidence that Plexus' shareholder value can recover, this time driven by a more diversified product and services mix, and now also in partnership with the world's largest international oil and gas service company.

"Our current product and service range includes exploration rental wellhead services; leak-free surface and subsea production wellheads; plug and abandonment technology; gas and hydrogen storage applications; POS-GRIP geothermal wellhead solutions; and special applications when inaccessible bespoke challenges present themselves.

"Although our industry has in the past been reluctant to openly recognise ESG objectives and NetZero targets, the reality is that engineers have an obligation to pursue the Best and Safest Technology available, which logically extends to both personnel and the environment.

"Ever since the Company's inception in 1987, Plexus has sought to identify and address certain established operating practices, which caused us to naturally gravitate towards leak-proof seal solutions and through the BOP operating practices. We did not have to be asked to adopt EGS principles! Indeed, although Plexus' efforts over many years were, I believe, labelled disruptive, our company today is (to my knowledge) the only oil and gas service company to have its emissions reducing technology recognised through the London Stock Exchange Green Economy Mark programme.

"For these reasons, and with the world in desperate need for safe and near NetZero energy sources whilst alternatives are in reality still a long way off, and with Putin exposing the risk of global sourcing energy policies, our time, in respect of a NetZero-Now capability may have come. This is particularly the case for natural gas, where recently the UK and European energy policies have pivoted back to exploration and production closer to home, whilst at the same time our partners have strengthened our reach into international markets.

"In the case of the UK, such fast moving developments are clearly evidenced by the Prime Minister's recent pronouncements in relation to energy security and the need to make Britain energy independent by 2040. Such a pledge to strengthen domestic power supplies after decades of short-term thinking, and the focus on homegrown fossil fuel extraction was bolstered by the Government indicating that it is poised to make available more than 100 new oil and gas permits in the North Sea, the first licencing round of its kind since 2020. This, I believe, bodes well for the future of Plexus, particularly if we can convince our industry and the regulators that in the field of critical wellhead technology home-grown leak-proof solutions are available, and which are based on prevention rather than cure."

**ENDS**

For further information please visit www.plexusplc.com or contact:

Plexus Holdings PLC  Ben van Bilderbeek, CEO Graham Stevens, CFO	Tel: [phone]
Cenkos Securities PLC Derrick Lee Pete Lynch	Tel: [phone]
St Brides Partners Ltd Isabel de Salis Ana Ribeiro Max Bennett	[e-mail]

Notes to Editors

Plexus Holdings plc (AIM: POS)

Plexus is an IP led company focussed on establishing its patented leak-proof POS-GRIP® wellhead and associated equipment as the go-to technology for energy markets whilst making a genuine contribution to the oil and gas industry's ESG and NetZero goals by championing "through the BOP" (Blow-out Preventer) designs, and lifetime leak-proof HG® metal-to-metal sealing systems.  Having protected the environment for many years through these technological innovations, the Company was awarded the London Stock Exchange's Green Economy Mark in July 2021 and continues to place emphasis on its ability to reduce harmful methane emissions and unnecessary maintenance and intervention costs.

Headquartered in Aberdeen, the Company has provided leak-free wellhead performance in over 400 wells worldwide and worked with an array of blue-chip oil and gas company clients.  As well as generating direct revenues from securing orders for surface production wellheads particularly in the UK and European North Sea regions, the Company has several licencing agreements with major partners including FMC Technologies, which is a subsidiary of TechnipFMC and Cameron, a Schlumberger Group company. Cameron has a non-exclusive licence to use the POS-GRIP and HG® metal-to-metal seal method of wellhead engineering for the development of conventional and unconventional oil and gas surface wellheads, and Plexus entered into a Cooperation Agreement, which enabled Plexus to return to the Jack-up Exploration (Adjustable) Wellhead rental business for 'through the BOP' jack-up applications, where Cameron will help to provide Plexus with sales leads and market insight through a formal Sales Advisory Board.

Plexus' current suite of products and applications include: "HG" wellheads, which combine POS-GRIP technology with gas tight leak free metal-to-metal sealing; the Python® subsea wellhead, developed in a Joint Industry Project with several industry leaders; the POS-SET™ Connector for the de-commissioning and abandonment market; and Tersus-PCT, an innovative HP/HT tie back connector product. Having proved the superior uniquely enabling qualities of POS-GRIP Technology, Plexus is now also focused on establishing its technology and equipment in other markets such as Plug and Abandonment de-commissioning, carbon capture, gas storage, hydrogen and geothermal where it can play an important role in reducing harmful methane emission risks as operators strive to deliver on ESG commitments and NetZero goals in a safe and cost-effective way.

For more information visit: https://www.plexusplc.com/

 

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